Chapter 4: Planning Capacity
Capacity = The maximum rate of output of a process or a system
Planning Long-Term Capacity
Long-term capacity plans deal with investments in new facilites and equipment at the
organizatonal level and require top management partcipaton and approval because they
are not easily reversed. These plans cover at least two years into the future, but
constructon lead tmes can sometmes be longer and result in longer planning tme
horizons.
Measures of Capacity and utilization
- Output measures of capacity : best utlized when applied to individual processes
within the frm or when the frm provides a relatvely small number of standardized
services and products.
- Input measures of capacity : generally used for low-volume, fexible processes, such
as those associated with a custom furniture maker.
Utilizatiion = The degree to which equipment, space, or the workforce is currently being
used, and is measured as the rato of average output rate to maximum capacity (expressed
as a percent).
= Average output rate / Maximum capacity X 100%
Economies of Scale
Ecioniomies iof scale = A concept that states that the average unit cost of a service or good
can be reduced by increasing its output rate.
Four principal reasons explain why economies of scale can drive costs down when output
increases:
1. Fixed costs are spread over more units.
2. Constructon costs are reduced.
3. Costs of purchased materials are cut.
4. Process advantages are found.
Diseconomies of Scale
Disecioniomies iof scale = Occurs when the average cost per unit increases as the facility’s
size increases.
Capacity Timing and Sizing Strategies
Three dimensions of capacity strategy before making capacity decisions:
1. Sizing Capacity Cushions
Capacity = The maximum rate of output of a process or a system
Planning Long-Term Capacity
Long-term capacity plans deal with investments in new facilites and equipment at the
organizatonal level and require top management partcipaton and approval because they
are not easily reversed. These plans cover at least two years into the future, but
constructon lead tmes can sometmes be longer and result in longer planning tme
horizons.
Measures of Capacity and utilization
- Output measures of capacity : best utlized when applied to individual processes
within the frm or when the frm provides a relatvely small number of standardized
services and products.
- Input measures of capacity : generally used for low-volume, fexible processes, such
as those associated with a custom furniture maker.
Utilizatiion = The degree to which equipment, space, or the workforce is currently being
used, and is measured as the rato of average output rate to maximum capacity (expressed
as a percent).
= Average output rate / Maximum capacity X 100%
Economies of Scale
Ecioniomies iof scale = A concept that states that the average unit cost of a service or good
can be reduced by increasing its output rate.
Four principal reasons explain why economies of scale can drive costs down when output
increases:
1. Fixed costs are spread over more units.
2. Constructon costs are reduced.
3. Costs of purchased materials are cut.
4. Process advantages are found.
Diseconomies of Scale
Disecioniomies iof scale = Occurs when the average cost per unit increases as the facility’s
size increases.
Capacity Timing and Sizing Strategies
Three dimensions of capacity strategy before making capacity decisions:
1. Sizing Capacity Cushions
